- Having a solid credit score tells lenders that a first-time buyer is good credit risk
- Having solid credit score helps first-time buyer get lower interest rate that could save thousands over life of home loan
Why Good Credit Score Important in Home Buying
Credit scores can be leveraged into great deals, according to NerdWallet.Â Deals such as interest rates on home loans, credit cards, auto loans, insurance premiums, apartments, etc.
For example, first-time buyers with a FICO score in the range of 620 would pay $65,000 more on a home mortgage of $200,000 than another first-time buyer with a FICO score over 76.
Help your first-time buyers build, defend and leverage their good credit with the following tips and, by the way, the National Association of REALTORSÂ indicates that 90% of all homebuyers apply for some kind of home loan so these tips help most all homebuyers:
Make Loan Payments in Timely Fashion
Establishing credit is the first step in obtaining a good credit score.Â So, if your first-time buyers havenâ€™t already set up a loan or line of credit with a credit card company, encourage them to do soâ€¦now.
If your first-time buyers are looking to improve their credit scores, encourage them to use their credit cards to make â€œresponsibleâ€ purchases and pay the credit card bill on time, every time.
Also encourage your first-time buyers to check their credit reports regularly and keep track of any late payments that may have slipped by them.Â Then, resolve any discrepancies they found with either the creditor who notified the credit bureau or the credit bureau itself.
Opening a new account may help build first-time buyersâ€™ credit scores.Â Taking on installment debt may also help build credit scores.
Why?Â Because it demonstrates to lenders that your first-time buyers can manage multiple types of loans.
On the other hand, when considering buying a new home, first-time and any time homebuyers ought to hold off opening anyÂ new lines of credit and/or making anyÂ type of new, large purchase such as a car.
According to John Ulzheimer, a former credit insider and author of many books on credit, â€œIf you are in the process of buying a home, then that should be your one and only credit.â€
Do NOT Close Out/Cancel Credit Sources
Encourage your first-time buyers to keep all credit source/lines open or unused/lightly used while making payments in a timely fashion.Â Closing or canceling those credit sources, even when not being used, may lower your first-time buyersâ€™ overall available credit.
Marc Souza, CitiArea Lending Manager, said, â€œYouâ€™re better off using that credit card for a small payment at the grocery store, and then paying it off at the end of the month.â€
Student Loans â€“ An Asset or a Hindrance?
As long as your first-time buyers have been regularly paying a defined amount of their student loan debts, lenders will be impressed.
If your first-time buyers are deciding whether or not to consolidate their student debts, suggest they first talk with a credit expert
Improvements in Debt-to-Income Ratios
Your first-time buyers debt-to-income (DTI) ratios, or the amount of their gross monthly income that goes toward monthly debts, are highly impactful of your clientsâ€™ abilities to obtain a home mortgage.
The lower the DTI, the better in â€œdemonstratingâ€ to lenders that your first-time buyers can pay their monthly home loan payments.
One way to improve a DTI ratio is to pay off allÂ of a smaller loan while simultaneously making the minimum monthly payments on other debt.
Another way to improve a DTI ratio is to lower you first-time buyersâ€™ debt to credit limit, or a credit utilization ratio.Â Letâ€™s say your first-time buyers have a total of $20,000 on two credit cards with a balance of $10,000 on one card, the credit utilization ratio would be 50%.Â A low credit utilization ratio impacts credit scores positively.
Thanks to NerdWallet, National Association of REALTORSÂ®, and CitiBank.
URGENT: 2021 Results Released. New FREE On-Line Web Event Reveals 17 Surprising Secrets Of The Top 100 Millionaire Agents. Get Your FREE Spot For The On-Line Webinar Now. When You Attend This Event You Will Have A Sense Of Relief Knowing You Can FINALLY Laugh At Your Money Worries – If You Follow This Simple Plan. Learn How To Generate 100’s of Motivated Leads Without Coming Off As A Pushy Salesperson and Losing Your Soul. Learn Now How To Become One of the 1000s of Agents Making HUGE Money NOW Who Never Thought They Could.
P.S. Limited Space Available. 235 Spots Left.